The global downturn in coal prices, a strong kiwi dollar, and the high cost of extracting coal at the mothballed Spring Creek mine are being blamed for Solid Energy's plan to cut a quarter of its workforce.
Industry sources say, however, that coal is a cyclical business, with price booms and busts that Solid Energy should have been able to cope with if it had run a lean ship like most miners.
Its plan to cut 163 corporate and development staff, mostly from Christchurch, showed the extent of the high overheads Solid Energy was carrying, when it was hit by a slump in coal prices this year, a source said.
The company had a profitable core mining business at the big open-cast Stockton and Rotwaro mines, which were lower risk and cheaper to produce from.
In contrast, Spring Creek coal was at the “high end” of the cost curve to mine “semi-coking” coal blended for use in steel making.
That coal was not of a high quality and would not draw as high a price as other coals. That meant the Spring Creek mine near Greymouth was first to go when prices fell sharply, the source said.
The state-owned company had also been trying to develop risky new lines of business, which cost money to get going.
The big job cuts at Solid Energy did not mean the rest of the industry was in trouble.
“It is no surprise coal prices go up and down, but maybe a surprise they went down so quickly,” a source said, falling to levels probably at the bottom of any forecasts, in part because of the high kiwi dollar.
“It was also a bloody great surprise when they went up quickly” last year, driven by high demand and a shortage of coking coal used in steel making.
Last year, Solid Energy made a net profit of $87m, up from $67.8m the previous year.
So it was “extraordinary” that it did not have the resilience to get through a tough year without massive job cuts, the source said. Miners typically assumed a low expected coal price, so they could work through inevitable lean years.
Solid Energy went through exactly the same process in 1999, when it laid off 120 staff, almost a quarter of its workforce then.
- © Fairfax NZ News